2 3 interpret unitized fixed costs appropriately when making cost management decisio 4302690

 

2.3   Interpret unitized fixed costs appropriately when making cost management decisions.

 

1) A unit cost is computed by dividing a total cost by some number of units.

 

2) Unit costs are considered to be an average cost per unit.

3) When a manager is making a decision based on cost figures, it is preferable that he (she) thinks in terms of unit costs.

 

4) When 50,000 units are produced the fixed costs are $10 per unit. Therefore when 100,000 units are produced fixed costs will remain at $10 per unit.

 

5) Unit costs and average costs are really the same thing.

 

6) Wheel and Tire Manufacturing currently produces 1,000 tires per month. The following per unit data apply for sales to regular customers:

 

Direct materials	$20
Direct manufacturing labour	3
Variable manufacturing overhead	6
Fixed manufacturing overhead	10
Total manufacturing costs	$39

 

The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?

A) $39,000

B) $78,000

C) $68,000

D) $62,000

7) Christi Manufacturing provided the following information for last month:

 

Sales	$10,000
Variable costs	3,000
Fixed costs	5,000
Operating income	$2,000

 

If sales double next month, what is the projected operating income?

A) $4,000

B) $7,000

C) $9,000

D) $12,000

 

8) Kym Manufacturing provided the following information for last month:

 

Sales	$12,000
Variable costs	4,000
Fixed costs	1,000
Operating income	$7,000

 

If sales double next month, what is the projected operating income?

A) $14,000

B) $15,000

C) $18,000

D) $19,000

9) Springfield Manufacturing produces electronic storage devices, and uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labour, and indirect manufacturing costs. Total indirect manufacturing costs for January were $300 million, and were allocated to each product on the basis of direct manufacturing labour costs of each line. Summary data for January for the most popular electronic storage device, the Big Bertha, was:

 

	Big Bertha
Direct manufacturing costs	$9,000,000
Direct manufacturing labour costs	$3,000,000
Indirect manufacturing costs	$8,500,000
Units produced	40,000

 

Required:

a.Compute the total manufacturing cost per unit for each product produced in January.

 

b.Suppose production will be reduced to 30,000 units in February. If indirect manufacturing costs include fixed costs then explain if the total cost per unit be higher or lower than in January.